The demise of Taylor, Bean & Whitaker, as well as Colonial Bank, continues to spawn guilty pleas. This time Raymond Bowman, the former president of Taylor Bean, pleaded guilty to charges of conspiring to commit bank, wire and securities fraud and of lying to federal agents about his role in the fraudulent scheme that caused the demise of both entities. U.S. v. Bowman (E.D.Va.).
Before its collapse, Taylor Bean was the largest non-depository mortgage lender in the country. Colonial BancGroup, Inc., with whom Taylor Bean had a long standing relationship, was one of the fifty largest banks in the U.S. As part of his plea Mr. Bowman admitted that he participated in the fraudulent scheme that destroyed both entities.
Mr. Bowman learned in 2002 that Taylor Bean had been running overdrafts in its master bank account at Colonial according to his plea. At the time Taylor Bean was suffering from liquidity problems. In the initial part of the scheme Taylor Bean sought to hide its true financial condition from Colonial by repeatedly shifting funds among various accounts. The account sweeps concealed the overdrafts which were funding the operations of the lender.
In another part of the scheme, called “Plan B” by the conspirators, Taylor Bean raised cash by selling a package of mortgages to Colonial. Portions of the package had previously been sold however. Other parts were fraudulent. Nevertheless, Colonial carried the worthless assets on its books.
The final facet of the scheme unfolded in 2005 when Taylor Bean established a special purpose entity known as Ocala Funding LLC. The company was designed to be a financing vehicle that would furnish Taylor Bean with additional funding for mortgage loans. The facility obtained funds for mortgage lending from the sale of asset backed commercial paper. Within a year Ocala had a significant collateral deficit. By August 2009 that deficit had increased to about $1.5 billion. Yet Taylor Bean caused Colonial and the Federal Home Loan Mortgage Corporation to believe that each had an undivided interest in thousands of loans worth hundreds of millions of dollars. This was false Mr. Bowman admitted.
Eventually Taylor Bean collapsed. Colonial was seized by banking regulators. The date for sentencing has not been set.
Previously, Lee Farkas, the former chairman of Taylor Bean, was named as a defendant in an SEC action and a sixteen count criminal indictment (here). Mr. Farkas’ criminal trial is scheduled to being in April 2011. The former treasurer of Taylor Bean, Desiree Brown (here), and the former senior vice president of Colonial Bank, Catherine Kissick (here), have also been named as defendants in SEC actions and pleaded guilty to criminal charges in connection with the scheme.